HUMAN RESOURCE COSTS AND FINANCIAL PERFORMANCE OF LISTED COMPANIES IN KENYA

Abstract

Evaluating human resource costs is indispensable because an organization’s success is largely dependent on the contributions and ability of the human resource to effectively and efficiently mobilize other resources. Human resource costs often constitute the major operational cost factor in most companies, and thus they need to be closely monitored and managed to maximize profitability. Their control is vital to ensuring the most effective and efficient use of finite resources. Despite heavy investment in human resource costs, some listed companies still face declining financial performance. The main objective of the study was to evaluate the effect of human resource costs on the financial performance of listed companies in Kenya. The specific objectives were; to establish the effect of personnel costs on the financial performance of listed companies in Kenya, to examine the effect of training and development costs on the financial performance of listed companies, and to assess the effect of employee benefit costs on the financial performance of listed companies. This study employed human capital, transaction cost, and resource-based view theories. The study was guided by positivism research philosophy. The study adopted a longitudinal research design. The target population was fifty-six listed companies in Kenya. The study employed census. Secondary data was collected from published audited financial statements of the listed companies in Kenya from 2017 to 2021 using a secondary data collection sheet. The study used panel data analysis with the aid of STATA to analyze data. Both descriptive and inferential statistics were obtained. Descriptive statistics comprised mean, standard deviation, minimum, and maximum values. Inferential statistics consisted of correlation analysis and random effects model. The results indicated that personnel costs significantly and positively affected financial performance with a p-value of 0.00<0.05 and a coefficient of 0.45. Training and development costs had a significant positive effect on financial performance with a p-value of 0.00<0.05 and a coefficient of 0.31. Employee benefit cost had a significant positive effect on financial performance with a p-value of 0.00<0.05 and a coefficient of 0.19 on return on assets. The study recommended that companies should ensure adequate allocation of funds to human resource expenditure vote heads to sufficiently finance the human resource costs. The study will provide valuable information to accounting standard-setting bodies to review current accounting procedures relating to human resource costs and provide standards for valuation, capitalizing, and reporting such expenditures in the statement of financial position.